The Court of Justice of the European Union ("ECJ") has ruled on a reference for a preliminary ruling on the interpretation of Article 63 of the Treaty on the Functioning of the European Union ("TFEU"), which governs the free movement of capitals. The proceedings were initiated by the Regional Court of Burgas, which referred to the ECJ the question whether Article 3c of the Law on the Ownership and Use of Agricultural Land ("LOUAL") infringes EU law by constituting a restriction on the free movement of capitals. The provision in question lays down that the acquisition of ownership of agricultural land in the territory of the Republic of Bulgaria is conditional on the acquirer having resided in the country for more than 5 years.

Article 63 (1) TFEU generally prohibits restrictions on the movement of capitals between Member States, including measures which may deter foreign persons from investing in a Member State. In that sense, the requirement for duration of residence contained in Article 3c of the LOUAL undeniably constitutes an obstacle to the free movement of capitals.

Such restrictive measures would be permissible by exception, but only if they are justified by overriding reasons relating to the general interest and comply with the principle of proportionality, which requires that they are capable of ensuring the achievement of the legitimate aim pursued and do not go beyond what is necessary to attain it.

The national legislation in question pursues legitimate objectives, namely (1) to ensure that agricultural land continues to be used in accordance with its intended purpose; (2) to prevent the reduction of arable land; and (3) to protect small and large Bulgarian farmers.

In this context, however, the ECJ finds that the restriction provided for in the LOUAL is not of a nature to guarantee the achievement of the above objectives, since it only includes an obligation to reside, but not an obligation to operate the property in a certain way or a prohibition to change its designation.  

The ECJ maintains that there are a number of other measures by which these objectives could be achieved without such a significant interference with the free movement of capitals, such as that provided for in Article 3c of the LOUAL. That circumstance leads to the conclusion that the requirement for duration of residence in the country as a prerequisite for the acquisition of agricultural land goes beyond what is necessary to achieve the objectives pursued.

In the light of the foregoing, the ECJ concludes that, in relation to the question referred, Article 63 TFEU must be interpreted as follows:

Legislation prohibiting the acquisition of title to agricultural land solely on the ground that the prospective purchaser has not resided for more than five years in the Member State in question must not be permitted.

It remains an open question whether and when amendments will be adopted to the LOUAL in order to comply with the ECJ ruling, respectively what will be the practice when it comes to transfer of agricultural land in the country before the introduction of such amendments.